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Medical bills led to two-thirds of bankruptcies in 2007, study finds

June 4, 2009 | 10:58
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Nearly two-thirds of those filing for bankruptcy protection in 2007 cite illness and medical bills as having contributed to their financial failure, reports a study published in the American Journal of Medicine. And 77.9% of those bankrupted at least in part by illness and its expenses had private insurance at the beginning of their medical odyssey.

The study, based on a survey of a random sample of 2,314 bankruptcy filings during early 2007, was conducted by researchers from Harvard University's Law and Medical Schools and Ohio University, under a grant from the Robert Wood Johnson Foundation. The researchers then conducted extensive telephone interviews with 1,032 of those filers to detail how illness and medical expenses contributed to their bankruptcy status. Four in 10 of the "medically bankrupt" had lost two or more weeks of wages due to their own or a family member's illness, roughly 35% had spent more than $5,000 or 10% of their annual income in out-of-pocket medical bills, and 43% specifically cited their own or a family member's illness as a reason for filing for bankruptcy.

Two of the four authors of the study, Harvard Medical School Professor Dr. David Himmelstein and Cambridge, Mass., physician Steffie Woolhandler, are co-founders of the group Physicians for a National Health Program. Citing the study's findings, Himmelstein called private insurance "a defective product, akin to an umbrella that melts in the rain." Woolhandler said the findings demonstrated that in the current debate about healthcare reform, proposals to "expand phony insurance -- stripped-down plans riddled with co-payments, deductibles and exclusions -- won't stem the rising tide of medical bankruptcy."

The study follows a 2005 study by the same researchers, who found that between 2001 and 2007, the proportion of all bankruptcies that could be attributed to medical problems rose by 49.6%. While Congress has in the meantime tightened the criteria for those who may file for bankruptcy, the stalled economy has propelled bankruptcies back up to the levels of 2001 -- roughly 1.5 million annually. The data reflected in the current study were collected before the economy had fallen to its lowest levels.

Two-third of those who were termed medically bankrupt were homeowners. Three-fifths had gone to college. In many cases, the researchers found, illness was followed by time lost from work, leading the filer to lose his or her job and, with it, health insurance coverage.

Those filing for bankruptcy due in part to illness averaged $17,943 in out-of-pocket costs. Such costs were highest for uninsured patients, whose medical expenses averaged $26,971. But patients who initially had private insurance but who lost it in the course of their illness were close behind, averaging $22,568 in out-of-pocket costs. Individuals with diabetes and those with neurological disorders such as multiple sclerosis or Parkinson's disease had the highest out-of-pocket costs, averaging $26,971 and $34,167, respectively. Medical expenses for those who suffered injuries ($25,096), strokes ($23,380), mental illness ($23,178) and heart disease ($21,955) also were heavy burdens upon bankruptcy filers.